One of the defining characteristics of money in relatively modern societies is that it is accepted as such by banks. (Ancient societies had a somewhat more informal notion of banking.) Although there could be other instruments used for transaction purposes, if they are not accepted by banks, their usage will be limited. Acceptability by banks drove the usage of copper tokens in the Canadian colonies. This article is a somewhat tangential reply to some comments of Eric Lonergan on the previous "Money As Debt".
Lower Canada was the British colony that become the Province of Québec after Confederation (1867). (Upper Canada became Ontario; the "Lower" referred to fact that it was downstream of Ontario on the St. Lawrence River.)
Although I was raised in a patriotic pro-Empire immigrant family, it is safe to say that the British colonial administrators did not always take into account in the interests of the colonists. In the case of the Canadian colonies, one of the ways that this showed up was in a lack of circulating coinage. Since the authorities did not supply coins, the private sector stepped in an copper tokens were used as money.
It should be noted that these tokens were for small denomination purchases; large transactions would be in the domain of the banking system. The Canadian banking system has attracted interest from the libertarian "Free Banking" school (which believes that banking should largely not be regulated). There was no central bank within Canada; if any entity filled that role, it would have been the Bank of England. I am not familiar enough with the literature to comment on how banks operated.
The monetary system was metal-based, and the tokens were supposed to have the same copper content as British coins. This makes the token system different from our fiat currency system. The issuers of tokens were private entities, and in some cases imported tokens from elsewhere in the British Empire. (They are called tokens and labelled as such since they were privately issued; coins are government-sanctioned issues.)
(The remainder of this section is based on information in Canadian Colonial Tokens, by W.K. Cross, in the section "Tokens of Lower Canada", page 87 of the Eight Edition.)
The coinage situation varied across the colonies. However, in Lower Canada, the situation was generally quite ugly after the Ordinance of 1764 which forbade the usage of old Spanish dollars (which had been cut into pieces). In 1812, foreign tokens were imported, and then locally produced tokens started circulating.
The metal content of these tokens decreased over time, and in the words of W.K. Cross:
By 1837, anything the size of a halfpenny would pass for a token and the banks, in the absence of action by the government, refused to take any of the so-called copper currency except by weight and issued their own tokens.The token pictured above is one of the bank one penny tokens that was issued in 1837. These bank tokens replaced all of the other tokens in circulation. (However, the other issuers have had the last laugh. Those non-bank tokens are rare and valuable; whereas the bank token above is more common and worth only $30 or so.)
(The Bank of Canada Museum has an excellent token collection; however, the museum is currently being renovated. Once it re-opens, it's worth a visit after you have finished your protest against the Bank's low policy rate. The token image on the cover of my ebook was licensed from the Museum.)
Broadly speaking, the average person on the street is quite easy-going with respect to the acceptance of coins. As long as other people accept it in commerce, there is little concern about the actual metal content behind them. This was not a peculiarly Canadian characteristic; the same is true of other countries that operated with coinage that was clipped or debased. As noted in the Tweet above by Eric Tymoigne, monarchs "cried down" their currency periodically. As a result, the belief that money is accepted solely based upon the utility value of the metal behind it is debatable.@wonkmonk_ @RomanchukBrian if one goes back to middle ages, kings used to default all the time by crying down the currency— Eric Tymoigne (@tymoignee) February 22, 2016
However, this acceptance of the underweight tokens ended once the banks stopped taking them in. I am hardly an expert on that period of history, but breaking the linkage between the nominal value of the token and the nominal value of bank accounts was enough to drive them out of circulation.
Money As DebtEric Lonergan replied to my article:
I don't know if this is a legal right/obligation to US citizens (or all holders of dollars) [to convert currency into reserves - BR] - but no one uses or holds them for this purpose. If in doubt, ask them. It is also not a right, that I am aware of - or care about - for any other currency which I (or anyone else) uses. Now, the holders of debt specifically do so to receive income and repayment of principal.
Like Wray, the lengths you need to go to to render dollar bills 'debts' proves the point, which is crystal clear: money is completely different to debt. Ask yourself this: what function does debt serve, and what function does money serve?I accept that the role of "money" can be thought of as different than the role of "debt"; however, it seems that (modern) money almost invariably takes the form of debt instruments.
Although it is clear that most people would not view dollar bills as being equivalent to reserves, they certainly do equate them to the dollars in bank accounts. As my token money example shows, non-acceptance by banks dooms something from being considered "money." Furthermore, banks are quite well aware of the equivalence between reserves and currency notes.
The role of the banking system driving money cannot be overlooked. The banking system operates with a unit of account (for example, the dollar), and there is an expectation that "money" will be accepted at par as a deposit. Given that adults generally have bills and debts denominated in that unit of account, it is difficult to use other potential means of exchange. Meanwhile. it is difficult to see what banks would exchange at par value other than debt instruments. For example, one could imagine that trades could be denominated in livestock (which happened in many societies). However, you are not going to get too far attempting to deposit a hog into your savings account in a bank branch in downtown Toronto.
Are Tokens Debt?My token example appears to undercut the claim that money generally consists of debt instruments. Are they not based on weights of copper?
Firstly, it should be noted that tokens were used for small denomination transactions. Nobody would buy a house using a sack of tokens. Large transactions occurred within the banking system, which is debt-based. Secondly, many tokens could be thought of as a form of debt.
The issuing entity was often inscribed onto the token. Even if the token was underweight, the issuer would be expected to accept the token back at face value. Although you and your customers know your penny token is mainly brass, you have to accept it exchange for goods worth a penny. The token can be viewed as a collateralised IOU; the metal content of the coin serves as collateral. People will accept collateral below the face value of the IOU if your credit is good.
Anonymous tokens did circulate. These cannot be traced back to any issuer, and so do not appear to be debts. However, their circulation was presumably aided by the credibility of the people using the coins. I am not an expert on the social customs of the nineteenth century, but it strikes me that one would not call into question the validity of a token handed to you by an honourable gentleman. In other words, the acceptability of the token in commerce was based on the credit of the users.
(c) Brian Romanchuk 2015